Do ‘actuals’ actually count for much when it comes to valuing an apartment complex?

By Sean Dreznin

March 17, 2017


Picture by S Dreznin – pictured is Sansara Bldg in Sarasota, FL

In almost every listing and eventual sale, a buyer will ask for financial information on the apartment complex they are looking at purchasing.

Often the financial information they receive is irrelevant or near impossible to decipher.

Case in point: we are marketing 3 properties totaling 111 units.  These units consist of approx 8% of the sellers portfolio.

This seller manages from in-house, empowers his managers to purchase direct on a company credit card for supplies and repairs.  These managers oversee many more units then just the properties we are entrusted with selling.  

You may be able to see where this might create some confusion.  The owner pays a manager a total amount and this manager effectively covers 80 units.  60 of those units are part of this sale.  The second manager manages 85 units and 51 units are part of this same sale.

The ownership only sees a gross management number and it’s not specific to the properties.  So the ownership will assume a management cost and allocate at their will.  This same process is applied for repairs, supplies, insurance (blanket policy), etc.

One of the most frustrating things is the P & L’s provided by the ownership may differ quite a bit when compared with the summary of the past 12 months for repairs of HVAC, plumbing, supplies, etc.


Trying to compare or make any sense of things often leads to more questions then answers and leaves most analytical investors without satisfaction.  I’ve seen tax returns showing losses whereas all parties involved realize the property cash flows.  We have all seen proformas where a property shows an absurdly low expense percentage and when the actuals are provided the percentage shown is on the other end of the common sense spectrum.

My advice is always to underwrite the property the way you plan to operate it and with the numbers you expect to see.  In the above case, assuming management is 7% or 8% is sound.  

Assuming real estate taxes will be reassessed in January 2018 and you will pay more in November 2018 is a smart assumption.  In this case you might look at a 1.6 multiplier for RE Tax approximation.

Obviously, there are actual numbers that are necessary.  Copies of leases and a rent roll are important.  Copies of bills to verify actual expenses are always welcome and valuable!

Finally, use some logic.  If you are presented with a tax return or a P&L that looks ridiculous in regards to the income & expenses of a property, it probably is shown that way for a reason other then selling the property.

Best of luck in your real estate endeavours

Sean Dreznin is a commercial sales associate with Ian Black Real Estate in Sarasota, FL.  He specializes in Investment style real estate specific to multifamily, shopping centers and retail. 

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